The energy revolution is here – but are consumers invited?

Nearly three years ago, the Australian Energy Regulator warned that the failure of key market players and arbiters to adapt to the impending, and unstoppable, energy market revolution would have disastrous consequences – disastrous, that is, for consumers.

“If the networks attempt to create barriers to new, competing technologies by limiting access to their ‘platform’, there is a risk that a significant number of consumers will ‘walk away’ from the network,” said AER CEO Michelle Groves in an October 2014 speech.

“This would have major consequences for many consumers and for the efficient operation of energy markets. The hope is that network businesses re-define the services they provide to adapt to the new market, which will benefit end-users and transform the industry.”

But while this revolution is being led by what the industry calls energy “prosumers,” concern is mounting about what this means for the remainder of consumers, beyond the early adopters, if incumbents and regulators continue to resist reform.

“We knew about this stuff some time ago,” says Mike Swanston, an energy consumer advocate who spent years working on the other side of the fence with Queensland’s Energex.

“Networks run the network one way, but if we’re going to get peer-to-peer trading and bidirectional flow and all the stuff that’s got to come, that nut has got to be cracked… And that nut has not been cracked yet,” Swanston told Informa’s Innovation and Start-Ups In The Energy Sector 2017 conference, co-hosted by RenewEconomy in Sydney this week.

Part of the hold-up, says Dominic Adams – the head of regulatory strategy at upstart retailer Mojo Power – is lack of motivation among the incumbents. But that’s not exactly surprising.

“Has anyone heard of an entrenched regulated monopoly business or sector that got together, wandered off down to their regulating body to ask for fundamental changes in the way that the whole system works so that customers would be able to access a wider range of competing services and new technologies from innovative competitors?” he asked the same conference on Tuesday.

As Adams points out, the innovations that are going to change the way consumers interact with energy are not going to come from the regulated monopoly, they are going to come from the competitive sector – a mixture of new retailers, energy service providers and start-ups.

But not without regulatory barriers being moved. And that probably won’t happen without the support of customers themselves. “Classic change theory says you’ve got to bring people with you,” says Swanston. “You’ve got to build the case for change.”

According to Adrian Merrick – a power retail veteran who left his job at Energy Australia to start up the new social enterprise, Energy Locals – the industry has not been doing a great job at this, so far. ‘Customer apathy’ is still a big problem, even as prices soar to uncharted heights.

“Are customers up for what we’re describing, or do we have solutions to problems that actually they’re not necessarily seeing?” he asked the same conference on Tuesday. And to underscore his question, Merrick showed the chart below, based on energy retail customer switching rates around Australia.

“So since the market moved to deregulation, since customers had a choice in retail market, this is the level of customers who have take up that choice.

“You’ve got 36 per cent of people (in Victoria) who haven’t got off their arse (to cut their bills by changing retailers), how are we going to get more complex propositions rolled out to these customers?”

According to Swanston, this is something that both the incumbents, the regulators and the start-ups, haven’t given enough thought to.

“There’s a lot of talk about customer choice,” he added. “But what are they choosing? With electricity, you can’t even see the stuff. It’s either on or it’s off; you don’t buy a blue one a green one or a yellow one.

“I will put money on the fact that the fundamental reason people want choice is that they’re pissed off with the price,” he added. “It’s dollars. dollars, dollars, and probably about dollars as well.

“Some may say that we wouldn’t have seen the crazy times of solar from 2012 to 2016 if it wasn’t for the fact that the planets aligned, so that we had the doubling of the network charges leading into a significant increase in the rate of rise of energy bills, you had strong government support with subsidies both federally and state-wise, you had the technology coming on the market and the installer market was ready to go.

“The fundamental thing was that it was a very clear business proposition for the customer: my bills have gone crazy, everything I do is not making it go down at all, cos it’s rising faster than I can control it, but the bloke next door put that black stuff on his roof, his bill halved, I’ll do the same.”

But, of course, that’s not the way it works for everyone, Swanston notes: “Take solar, you’ve got 30 per cent of houses with solar rooftops in Queensland, but anyone who’s renting, anyone in an apartment, nup, sorry, you’re a price taker, it’s the best you’re gonna do.”

And for those customers, and the others who show no interest in trying to cut their bills, do they really want to get involved in bringing costs down?

“Do people want look at an app?” asked Swanston. “Do people want to spend more than eight minutes a day looking at their bill and trying to understand how much did I get for my electrons when I traded them.

“Yes we have apps and stuff, but of the 9 million electricity customers in Australia, how many of them are going to use that … or are we going to have to provide a layer of ‘don’t you worry about that, we’ll look after those things around the outside’.

But the fundamental question to ask, says Merrick, is does it matter: “Is (customer apathy) a problem or isn’t it, when we look at actually rolling out possibly more complex things than something that takes three minutes to do on your computer or you phone?”

“Well, yeah, maybe it does matter,” he told the conference, because soaring electricity costs are not being born equally among consumers. There is a startling cost divide, he points out, not just between solar and non-solar households, but between the huge number of retail offers currently on the market.

Comparing the prices of two incumbents and a “seemingly progressive and transparent” retailer, Merrick says he found a 64 per cent price range between the offers being put out there. And even in the case of the “seemingly progressive” retailer alone, he found a 34 per cent spread what was being offered.

“We can’t just say isn’t it great that …we’re getting the price of cheaper (rooftop solar) energy” Swanston added. “Unfortunately, customers are still smarting from 200 per cent increase in prices on the bill. You have to look at the collateral issues and say how much is that going to cost? Because that’s the whole cost of the customer service.”

For Mojo’s Adams, the key question we need to ask of the current regulatory framework is this: “what bits of it need to change to allow these (new) players to get in and compete to provide …cool new stuff to consumers in a way that does not harm the consumers who can’t afford to buy the cool new stuff.

“We value things like quality, so the power comes at the right frequency and voltage and so on; reliability, so there’s always enough power to serve demand; security, so the lights don’t go out…; safety, so no one gets zapped; and of course cost.

“It’s key to note… that cool new stuff can provide all of these services and all of these functions. We need to rules to continue to evolve… so that any technology can support these features noted above and get paid adequately for doing that.

“It shouldn’t be an option,” he adds, “(for customers) to incur the costs of getting it wrong.”

And Merrick agrees: “We’ve currently got 27 different reviews into the market. I would absolutely urge our federal energy minister to get a grip on this and to start making sure that we don’t reach a position where customers pick up the cost of incremental change.

“Because having implemented a lot of short-term regulatory changes, I can guarantee you that the costs will get passed through to customers; it’s not the retailers who will suffer from this. So this is something that we need to do.”